Eligible 457(b) plans offer flexible investment options and creditor protection; however, when withdrawn they become taxable income that must be declared. Rollover to an IRA may provide tax benefits and streamline retirement planning processes; however it can be complex; so it is essential that one fully understands all rules, processes and implications before undertaking this option.
Tax-deferred
No matter if you are rolling over a 457(b) or 401(k), it is crucial that you understand its tax repercussions and speak to an experienced financial advisor regarding which options would best fit your individual situation.
One of the greatest advantages of a 457(b) plan is its provision for penalty-free withdrawals once employment ends, making it more flexible than IRAs or 401(k)s that require withdrawal before age 59 1/2 to avoid incurring a 10% penalty fee.
Tax-free
A 457(b) retirement savings account is an employer-provided tax-deferred savings vehicle available to certain state and local governments and tax-exempt organizations that allows their employees to contribute pre-tax dollars, thus lowering taxable income for the year. When rolling over from 457(b) to an IRA, be mindful of any specific tax implications or rules specific to your employer plan – consult a financial advisor who can offer tailored guidance based on your unique situation and goals.
Another benefit of a 457(b) plan is that once you leave your job, regardless of your age, funds may be withdrawn without penalty – unlike some retirement accounts that impose an early withdrawal fee of 10% and income tax for withdrawals prior to age 59 1/2. While making such decisions is never easy, consulting a professional before making decisions can save time, money, and give access to wider investment options.
Reporting
A 457b deferred contribution plan is available to public service employees and employees of tax-exempt organizations. Similar to a 401(k) or 403b plan, but with some unique rules and regulations. For instance, government backed 457bs allow their participants to rollover distributions without incurring penalties; non-government 457bs do not permit this option.
Before retiring or terminating employment, certain conditions must be fulfilled to qualify for withdrawal of funds from a 457b account. These requirements include reaching age 59 1/2 and still serving your employer. Alternatively, your assets can be moved into other retirement accounts like an IRA, 401(k), or 403b.
Your 457b can be converted directly into another eligible retirement account such as an IRA or 401(k). For assistance in making this transition, reach out to a certified financial professional; alternatively, consult with the IRS’ handy rollover chart.
Investment options
Transferring a 457(b) account to an IRA offers many advantages, such as increased investment options and tax savings. Before making this decision, however, it’s essential to thoroughly research its implications before taking this step. Consult a financial advisor for advice tailored specifically to your circumstances and needs.
The IRS mandates that you withdraw an annual required minimum distribution (RMD). Failing to do so could incur severe penalties; an easy way around this issue is transferring your retirement accounts directly into an IRA and using this process known as direct rollover.
Direct Rollovers involve making an one-time transfer from your governmental or non-governmental 457(b) plan into an IRA account. As this can be a complex process, it is wise to consult your plan administrator and IRA provider in order to complete this successfully.
